DNA Money Edit: As banks lie low with NPAs, St emerges a fundraising avenue

The financial markets have never been busier with about half a dozen corporates preparing to raise a whopping Rs 25,000 crore through routes like qualified institutional placement or global depository receipts.

This would well be the first signs of recovery in the real economy with a continued bull run in the equity market and positive sentiment in the debt market acting as triggers.

Several data points are showing such a likely scenario.

In the first six months since January, fundraising through the QIP route, at Rs 33,907 crore, has jumped 64 times over the same period of 2016, according to Prime Database. However, around Rs 29,000 crore of it was raised by the banking sector alone.

The urgency of the banks to raise capital is understandable. The banking sector's core capitalisation, which got eroded over the last few years, and generation of internal capital, which is expected to remain weak due to subdued growth outlook, need some urgent padding up for continued provisioning against ageing of outstanding non-performing loans and potential resolution of some large accounts, Fitch Ratings said in its recent report on long-term issuer default ratings of several Indian banks.

That said, investments in the economy are expected to gradually pick up from current lows on the back of the transmission of supportive monetary policy of the past two years and stepped-up structural reforms such as the goods and services tax which is likely to facilitate trade and reduce transaction costs, thereby favourably supporting capital formation in the long run.